Case Analysis Coke And Pepsi

1. Why, historically, has the soft drink industry been so profitable?

Most of the Industry revenues are mainly due to the contribution of the two competitors: Coke and Pepsi. These companies have established high barriers to entry such that it has become unfeasible for new entrants to compete with the production and sales level of the two companies. Consequently, Coke and Pepsi has indirectly been granted a power over various retail channels like convenience stores, vending machines, etc. These channels are highly fragmented, have limited power and cannot bargain over prices. This ensures that these two companies receive the most favourable margins on their products.

An industry analysis by Porters Five Forces reveals that the soft drink industry has historically been favourable for profitability. The industry is very profitable, more so for the concentrate producers than the bottler’s. This is surprising considering the fact that the product sold is a commodity which can even be produced easily. There are several reasons for this, using the five forces analysis we can clearly demonstrate how each force contributes to the profitability of the industry.

1. Threat of new entrants

• To enter into the bottling section, one would require substantial capital investment, which would in turn deter the entry.

• Through their Direct Store Door (DSD) practices, these companies managed to have good relationships with the retail channels.

• It was difficult for a new player to enter